Correlation Between Northwest Pipe and ESAB Corp
Can any of the company-specific risk be diversified away by investing in both Northwest Pipe and ESAB Corp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northwest Pipe and ESAB Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northwest Pipe and ESAB Corp, you can compare the effects of market volatilities on Northwest Pipe and ESAB Corp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northwest Pipe with a short position of ESAB Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northwest Pipe and ESAB Corp.
Diversification Opportunities for Northwest Pipe and ESAB Corp
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northwest and ESAB is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Northwest Pipe and ESAB Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESAB Corp and Northwest Pipe is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northwest Pipe are associated (or correlated) with ESAB Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESAB Corp has no effect on the direction of Northwest Pipe i.e., Northwest Pipe and ESAB Corp go up and down completely randomly.
Pair Corralation between Northwest Pipe and ESAB Corp
Given the investment horizon of 90 days Northwest Pipe is expected to generate 2.08 times less return on investment than ESAB Corp. In addition to that, Northwest Pipe is 1.12 times more volatile than ESAB Corp. It trades about 0.05 of its total potential returns per unit of risk. ESAB Corp is currently generating about 0.11 per unit of volatility. If you would invest 4,726 in ESAB Corp on August 23, 2024 and sell it today you would earn a total of 7,820 from holding ESAB Corp or generate 165.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northwest Pipe vs. ESAB Corp
Performance |
| Timeline |
| Northwest Pipe |
| ESAB Corp |
Northwest Pipe and ESAB Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northwest Pipe and ESAB Corp
The main advantage of trading using opposite Northwest Pipe and ESAB Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northwest Pipe position performs unexpectedly, ESAB Corp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in ESAB Corp will offset losses from the drop in ESAB Corp's long position.| Northwest Pipe vs. Insteel Industries | Northwest Pipe vs. Carpenter Technology | Northwest Pipe vs. ESAB Corp | Northwest Pipe vs. Gulf Island Fabrication |
| ESAB Corp vs. Northwest Pipe | ESAB Corp vs. Haynes International | ESAB Corp vs. Mayville Engineering Co | ESAB Corp vs. Ryerson Holding Corp |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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